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The IRS Criminal Investigation (IRS-CI) division made headlines in 2024 by uncovering over $2.1 billion in tax fraud. This achievement underscores the agency’s dedication to tackling financial crimes, but it also serves as a cautionary tale for business owners. The IRS-CI isn’t just focusing on high-profile cases; its reach extends to fraudulent Employee Retention Credit (ERC) claims, money laundering, and other financial violations that could impact small businesses.
Key Numbers to Note
The IRS-CI’s fiscal year 2024 statistics are impressive—and alarming for those who might be cutting corners:
- $2.1 billion in tax fraud identified.
- $9.1 billion in total fraud uncovered.
- 615 individuals sentenced to an average of 27 months in federal prison.
- 1,571 convictions achieved, boasting a 90% conviction rate.
These numbers demonstrate not only the breadth of IRS-CI investigations but also their effectiveness in achieving convictions. This high success rate means that if you’re flagged, the odds of a successful prosecution are significant.
The Employee Retention Credit Under the Microscope
One notable focus this year was the Employee Retention Credit (ERC). IRS-CI initiated 493 investigations into fraudulent ERC claims, involving a staggering $5.5 billion in potentially fraudulent activity. While only 42 cases have resulted in charges so far, this initiative highlights the IRS’s increasing scrutiny of this pandemic-era relief program.
For legitimate business owners, this should prompt a review of any ERC claims filed. Errors, even unintentional ones, could trigger audits or worse. Ensure you’ve properly documented eligibility and calculations to avoid unnecessary headaches.
What Business Owners Need to Know
The IRS-CI’s success isn’t limited to tax fraud. Their investigations span narcotics trafficking, public corruption, health care fraud, and identity theft, among others. They’ve also stepped up efforts against cybercrime, opening a new cyber attaché post in Singapore and an attaché post in Nassau, Bahamas, to tackle international financial crimes.
Practical Steps to Stay Compliant:
- Review Your Financials Regularly
Conduct periodic audits of your books and ensure compliance with all tax obligations. This is particularly important for business owners claiming deductions, credits, or other tax benefits. - Be Cautious with Tax Credits
Programs like the ERC offer valuable benefits, but they come with strict eligibility criteria. Work with a tax professional to ensure compliance and avoid red flags. - Avoid Shortcuts
Fraudulent practices like misclassifying expenses, underreporting income, or claiming false deductions might seem like quick fixes, but they carry severe penalties, including prison time. - Understand Cybersecurity Risks
As IRS-CI’s focus on cybercrime grows, businesses handling sensitive customer or financial data must strengthen cybersecurity measures. A breach or failure to report cyber-related financial crimes could result in investigations. - Stay Informed
The tax code evolves constantly. Regularly consult with tax professionals and stay updated on IRS guidance, particularly for industry-specific rules and new tax policies.
A Message for Business Owners
The IRS-CI’s record-breaking year should serve as a wake-up call for all business owners. While their focus includes high-profile criminals, small businesses are not immune to scrutiny. With 20 U.S. field offices and 14 attaché posts abroad, IRS-CI has the resources to uncover even complex financial crimes.
Protecting your business starts with proactive compliance. By maintaining accurate records, adhering to the tax code, and seeking professional guidance, you can avoid the costly mistakes that lead to IRS investigations. Remember, the IRS’s ability to “follow the money” is unmatched—don’t give them a reason to look at yours.
